Cost Technologies for Competitive Advantage
Cost technologies are means by which we modify the cost of a product or service.
Cost is a measure of human endeavor in monetary units. Putnam (1978) notes that cost has physical units of work. It is an expenditure of resources. These resources include labor and capital. Labor is a measure of human work in units of the total person equivalents applied over time. Capital is a measure of non-human resources expended over time. Capital resources include mineral and money rights. So called capital equipment is not a capital resource since a considerable amount of labor is expended to create it. Capital equipment must be expressed recursively as labor and capital. In other words, the sum of all labor expended to genopersist an object must be accounted for as labor. All other resources expended are accounted for as capital.
The number of people applied at any given time plus the capital expenditure rate at that time is a measure of the power of human endeavor. If no capital is involved, the power of human endeavor is measured by personpower. This is analogous to the power of an automobile when measured as horsepower.
In this context, activity based cost is a measure of the work of human endeavor associated with the application of an action upon an object. The double {action upon, object} is a function within the system to genopersistate the object. Thus, activity based cost measures the amount of work of specific genopersistation functions.
Cost deployment is a way of mapping cost to functions, objects, quality characteristics, and customer desires. It is a fundamental process within quality function deployment.
The goal of design for cost is to reduce cost. Thus, successful applications of design for cost result in a negative cost force. That is, they create an acceleration which reduces the power of human endeavor.
Function cost analysis is a means of designing for cost employed by value engineers.
Parametric cost analysis derives and applies relations between the work of human endeavor and factors or variables which are significant in the creation of forces of human endeavor. These variables become alternate coordinate systems within which we can analyze the work of human endeavor.
Theoretical cost analysis provides a theoretical basis for the analysis of the work of human endeavor. The equivalence of cost and the work of human endeavor appears to form an as yet unexploited basis for theoretical cost analysis.
References
- Putnam, L. H. (1978). "A General Empirical Solution to the Macro Software Sizing and Estimating Problem," IEEE Transactions on Software Engineering, Vol. SE-4, No. 4, July, pp.345-361.
Bibliographies
Surfing the Web
AFIT Graduate Cost Analysis Program
- DOD Costing References
- Rand Cost Analysis Reports